Haryo Kuncoro, professor of economics at the State University of Jakarta School of Economics and research director at the Socio-Economic and Educational Business Institute, in The Jakarta Post (January 27, 2021)
Summary by Alejandro Reyes
US President Joe Biden’s treasury secretary, Janet Yellen, has emphasized her commitment not to interfere with the US dollar. Her statement has given rise to various interpretations. It could be an initial signal that Biden's economic policies will tend to be pro-market and that market forces will determine the value of the dollar.
Yellen has probably already anticipated the second interpretation. The commencement of vaccination in the US raises optimism about a faster-than-expected economic recovery in the second half of this year. This has triggered discourse about the US central bank gradually reducing its bond-buying program to sustain the nation’s economic recovery. The two policies above, if they are really implemented, will undoubtedly shake the global market.
The first-round impact will work directly on the commodity markets. The volume of trade will fluctuate in accordance with the dynamics of US dollar. If the dollar strengthens, exporters will suffer, and importers will benefit.
How about Indonesia? If both US economic policy scenarios prove correct, Indonesia will face a flight of foreign capital, which in the short term will depreciate the rupiah. Imports of raw materials, equipment and machinery will shrink, which will further affect production capacity. If the US economy quickly recovers, Indonesia can seize export opportunities and offset the pressure for the rupiah’s depreciation.
Indonesian products can fill the role of Chinese products that are subject to high tariffs. Indonesia's share of non-oil and gas exports to the US ranks second after China. In another scenario, Chinese products that should be destined for the US will be transferred to other countries, including Indonesia. In addition, North Africa, the Middle East, Eastern Europe and Latin America are wide open to become potential markets for Indonesian products.